GLOBAL REPORT—Despite ongoing anxiety in Greece and high unemployment in countries such as Spain, hospitality professionals in Europe are feeling cautiously optimistic about the future of government travel.
“Government meetings spend, added up across the five major European markets we cover—Germany, U.K., France, Italy and Spain—we predict will rise by 4.9% in the upcoming year,” said Catherine McGavock, director of operations in Europe at the Global Business Travel Association. For the same period, the GBTA predicts corporate business travel will increase by 6%.
The slightly lower percentage for government travel might be because government already has successfully cut travel spend, while corporate business is enjoying an uptick as it starts and continues to hire new employees who travel, McGavock added.
Government business in Europe accounts for 4.7% of all business travel demand compared with 5% globally, she added. That share is expected to increase for at least the short term.
“While 2012 was a difficult year, by the end of 2013 we predict an upturn, and in 2014 we believe we will see extensive growth,” McGavock said.
“There is a return in business conference,” she said. “People are trading and thus traveling, and there are higher rates of employment. The next five years should see a bounce back in business travel among all of Western Europe’s major markets.”
The recovery is aligned with a broader economic recovery throughout the eurozone. Financial information services company Markit Economics on 22 August published its latest report on eurozone growth that showed the region experienced the largest monthly increase in business activity over two years.
Additionally, the European Commission—the European Union's executive body—predicts that the 27 countries it represents will emerge from recession in the fourth quarter of 2013, with its overall economy growing by 1.4% in 2014.
Of those countries, Germany is one of the major generators of demand.
According to official data, Germany’s budget surplus for the first half of this year was 0.6% of gross domestic product, which, despite being low, is a rarity in Europe.
“The upturn is being led by Germany, where growth accelerated again in August, driven in turn by rising domestic and export demand,” Chris Williamson, Markit’s chief economist, said in a news release.
Russell Kett, chairman of the London office of HVS, a hotel valuation, consulting and brokerage firm, said countries that experienced the worst of the global recession are not necessarily the ones cutting back the most.
“In the U.K., there has been a deliberate use of restricting government meetings and overnights, especially in provincial markets,” he said. “(Government) has put its money where its mouth is, and hotels have suffered across the country.”
But government demand in the U.K. is inching back as the economic outlook improves.
In year-on-year growth, the GBTA’s McGavock predicts the U.K. government’s travel spend in 2014 will increase by 2%, while predictions for 2015, 2016 and 2017 are even rosier, coming in at 9%, 14% and 14%, respectively.
Hoteliers are working harder just to maintain levels of government business. Those who have persevered throughout the past few years are in the best position now that things seem to be picking up.
“Overall for Europe, there have been serious cutbacks over the last three years, and of course hoteliers need to replace this business,” Kett said. “They have marketed like crazy and increased leisure business, although they are not getting the same (average daily rate). Gradually we are seeing commercial and meeting demand increase, and rates have started to rise, although not uniformly across any country.”
Executives at the Carlson Rezidor Hotel Group have high hopes for recovery—in the U.K. at least.
“While U.K. government travel spend has dropped over the last three years, Carlson Rezidor recognizes this sector as a vital revenue stream for our business and as such has worked very hard with numerous government agencies and third parties to increase our share of the market. Efforts have been rewarded, and we are very happy with the growth in government business that has been achieved over the past 18 months,” said Edward Pinchard, the company’s area director of global sales for the U.K. and Ireland.
PricewaterhouseCoopers shares the optimism for several gateway cities throughout Europe. In its “European Cities Hotel Forecast 2013,” PwC predicted the top five cities for growth in 2013, when reported in euros: St. Petersburg (+2% occupancy, +5.1% ADR, +7.3% RevPAR); Moscow (+0.1%, +5.2%, +5.2%, respectively); Paris (+0.4%, +4.6%, +5%); Frankfurt (+1.2%, +2.3%, +3.5%); and Berlin (+1.1%, +2%, +3.2%).